A day after the Australian economy celebrated its 21st consecutive year of growth, there’s more evidence of resilient demand with the nation's jobless rate posting a surprise drop in August.

Recent job losses at high-profile companies including Qantas, Darrell Lea and Caltex are yet to bolster the unemployment rate, which actually eased last month to 5.1 per cent from 5.2 per cent in July.

A fall in the unemployment rate for August masks weakness in the national labour market.

The drop countered analysts' expectations that the rate would nudge higher to 5.3 per cent, and helps to validate the Reserve Bank's decision earlier this week to leave official interest rates on hold.

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The rosy jobs result, though, may be a less useful guide than usual to the underlying strength of the economy. For one thing, the jobless rate fell even as the economy shed a net 8800 jobs for the month, and total hours worked actually.

An accounting trick, of sorts, helps to explain how jobs and the jobless rate can both decline. Fewer people were actually looking for work last month, with the so-called participation rate - the share of the population working or available to work - dropping 0.2 per centage points to 65 per cent, a level not seen since the start of 2007.

"There is little labour demand ... people aren't finding jobs, they're giving up looking for them now," said Brian Redican, a senior economist at Macquarie. "This won't push the Reserve Bank to cut rates in October, but nor will it stand in the way of a rate cut for other reasons."

Without the masking of the lower participation rate, the jobless rate would have risen to 5.4 per cent, according to Commonwealth Bank. March 2010 was the last time the rate reached such a level.

‘Soft’

The economy, in fact, generated just 600 additional full-time jobs last month, according to the Australian Bureau of Statistics. Since employers culled 9300 part-time jobs, delivering that net loss of 8800 jobs after rounding. Economists had tipped the economy would add 5000 jobs for the month.

"It’s certainly softer than what the market was going for," said AMP’ senior economist Shane Oliver.

"The unemployment number is totally misleading. It only fell because the participation rate fell, and that's been the story for much of the last year,’’ he said.

Total hours worked fell by 5.7 million hours to 1.61 billion hours in August, the ABS said. The labour force's so-called under-utilisation rate, which takes into account those looking for more work as well as the unemployed, fell 0.2 percentage points in August to 12.4 per cent.

The Australian dollar initially dropped on the jobs news before rebounding strongly, back above the $US1.02 mark as investors found the numbers to be less negative than expected.

As a result of the renewed confidence, the chance of a 25 basis point cut in official interest rates next month eased to about 55 per cent, down from 70 per cent yesterday, according to Credit Suisse data.

State by state

If the participation rate's drop masked the overall downward trend then New South Wales played an equivalent role among the states.

The most populous state saw its unemployment rate fell 0.4 percentage points to 4.8 per cent, while the rate rose in all other states.

But one economist warns against trusting the NSW numbers, saying the drop may be reversed in September.

"We are not reading too much into the decline in New South Wales unemployment rate," said Moody's Economy.com's Katrina Ell. "We expect it is a monthly anomaly and will probably drift back up to just above 5 per cent in September."

Elsewhere, the seasonally adjusted jobless rate in Victoria rose to 5.6 per cent in August from 5.4 per cent a month earlier, the ABS reported.

The jobless rate also increased in the mining states, adding to recent evidence that the resources boom has passed its peak.

Western Australia’s unemployment rate increased to 3.9 per cent in August from 3.7 per cent in July.

Queensland’s rate increased to 5.9 per cent from 5.8 per cent over the same period. South Australia’s jobless jumped to 5.7 per cent in August, from 5.4 per cent in July.

The fall in the participation rate lies at the heart of concerns about today’s number. JP Morgan economist Ben Jarman said the data showed all types of workers were giving up the hunt.

‘‘Ultimately this is an unsustainable way of keeping the unemployment rate low," he said. ‘‘You either have to get the participation rate back, or there is less income circulating around the economy."

Mr Jarman said that if there was less income in the economy, household consumption was likely to weaken and that could see the RBA consider further rate cuts to spur growth.

Job losses

Despite the unemployment rate falling to its lowest since May, companies across the country continue to cut jobs amid predictions that economic growth will moderate in the second half of the year.

Big question marks hang over the pace of expansion in the resources sector. Fortescue Metals announced job cuts this week and BHP Billiton has placed major projects on hold as commodity prices retreat.

Retail jobs also remain under pressure after economic growth data yesterday confirmed consumers were watching their spending closely. This week alone, women’s fashion chain Ojay’s and Australian Convenience Foods were placed into administration, threatening the loss of hundreds of jobs.

Clouds gathering?

Some economists expect the unemployment rise to 5.5 per cent by the end of the year as the overall economy's expansion slows.

Yesterday, the ABS released figures showing the economy grew strongly in the June quarter, but at less than half the pace of the March quarter. Gross domestic product (GDP) rose by 0.6 per cent in the three months to the end of June, taking the annual rate to 3.7 per cent. While that is robust by global standards, it marks a slowdown from March, when the annual rate of growth was 4.4 per cent.

The weaker outlook is expected to have a flow-on effect for jobs. Leading indicators of jobs growth have also fallen. The ANZ Job ads index fell 2.3 per cent in August, its fifth consecutive monthly fall.

Still, Australia's jobless rate would stoke the envy of many other rich nations. Less than 60 days before the US presidential election, America's jobless rate remains at 8.3 per cent, while the eurozone's rate hovers at 11.3 per cent for July. Even resource rich Canada is struggling with a jobless rate of 7.3 per cent, in part because of its dependence on its giant neighbour, the US.

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146 comments

There should be a new stats: total assistance claimed from centrelink. Unemployment rate might be down, but so is the participation rate. Seems a lot of people have gone back to study or become a full time house wife/husband.

Commenter

N0tR3allyz

Location

Sydney

Date and time

September 06, 2012, 11:44AM

Isn't this nice news ! However I suspect there will be the gloom and doom tomorrow, EVERYONE THE SKY ISNT FALLING IN. Love your friends and family

Commenter

Tim

Location

St Kilda

Date and time

September 06, 2012, 11:42AM

You obviously didn't read the article. Read the section entitled "False Positive" which states that the amount of jobless fell because the participation rate fell. It also said that this was an unsustainable way of keeping the numbers low. Then, further along it's all about how unemployment is rising and will continue to rise. Reading the headlines is quite different from reading the article.

Guess what's going to happen when we start to pay back the debt used to "stimulate" this economy.

Commenter

Shervin

Location

Date and time

September 06, 2012, 11:50AM

Well there was a net loss of close to 9000 jobs and unemployment rate only fell because of the lower participation rate...

Commenter

Adrian

Location

Date and time

September 06, 2012, 11:55AM

Low interest rate, low unemployment, low GDP debt ratio How much more can more incompetent can this governbent be??? If only we had a Coaliation government like the Conservative govt in the UK running consecutive recessions LOL

Commenter

Sam

Location

Date and time

September 06, 2012, 11:59AM

Shervin, you are spot on. The ill-advised stimulus measures taken in Australia were the biggest in the world and they blew out our government debt. We had the biggest GFC stimulus in the world. Last weeks MacroTrades Portfolio demonstrated just how badly this is going to blow up in the government's face. There is no more ammo left to bail out the over-leveraged!

Commenter

Foxy Trollwolf

Location

Date and time

September 06, 2012, 12:10PM

@ShervinThe bulk of this country's debt is private debt not government debt

Commenter

Joe

Location

Date and time

September 06, 2012, 12:13PM

Foxy - the vast, vast majority of government debt is due to reduced tax receipts due to - you guessed it - the GFC. So the thing that people say wasn't bad enough to require stimulus was bad enough to cause a couple of hundred billion in reduced tax receipts. Which would have been much worse without stimulus to keep us out of recession.

But I'm sure if Howard was re-elected the world banking system wouldn't have collapsed..